9 Accounti Consider the follo a Revenues dur b Supplies on h c Cash receive d To

Question

9 Accounti Consider the follo a Revenues dur b Supplies on h c Cash receive d Total liabiliti e Dividends p f Cash paid fo g Cost of buil 6 Identify accounting assumptions and qualitative characteristics LO1.6 Consider the following independent scenarios a Peter's Pizza has been in business for 25 years. All of its operations are profitable, and the accountants that the company will continue to operate into the foreseeable future b A bank used the information presented in Fiona's financial statements to detemine if it should extend a $300000 loan to Fiona. The information in the financial statements made a aRequired differenoe in the bank's lending decision. c Indicate wheth income statem The manager of Martha's Antiques does not like to change accounting procedures because it hinders her ability to make of retained ear year-to-year comparisons d Sarah Schofeld, owner of Homebush Mouse Hospital, infoms her accountant that she doee not want to review 10 Finar any accounting issue that is smaller than 1 per cent of Listed below company's f profits Required identify the accounting assumption or qualitative characteristic that relates to each scenario User Shareholde 7 Accounting terms LO2,3 Consider the following information Banker Supplier Sharehol Item Appears on 1 Salaries expense 2 Equipment 3 Cash 4 Accounts payable Classified as Advertis

Explanation / Answer

The Accounting Assumptions are as follows:

a. Accrual- Record revenue and expenses on accrual basis and not actual basis

b. Conservatism-Revenue and expenses should be recognised as and when earned

c. Going Concern- A business will continue for indefinite time

d. Reliability- Only transaction which can be proven, should be recorded

e. Consistency- Same method followed consistently

f. Economic Entiity- Transactions of business and owners are not mixed

g. Time Period- Financial Results should cover a uniform and consistent period

The Qualitative characterstics are as follows:-

a. Consistency- Same method followed consistently

b. Reliability- Only transaction which can be proven, should be recorded

c. Relevance- Means it will make a difference to a decision

d. Comparability- it can be compared with earlier years

Solution

a. Accounting Assumption- Going Concern- it is working since 25 years and has profitable business all throughout these years and the accountants believe, the same will continue for many years

Qualitative characterstics-Reliability- The accountants by seeing the financial statements have faith in the copany that it will generate profits for further many more years

b. Accounting Assumption- Reliability- The Banks believed on the financial statements and hence relied on the same

Qualitative characterstics- Relevance- The information in the financial statement was so relevant that it made a difference in their opinion

c-Accounting Assumption- Consistency- The manager does not want to change accounting procedure and hence wants to bring consistency

Qualitative characterstics- Comparability- If there is no consistency, then the financial statements will not be comparable

d. Qualitative characterstics- Relevance- Any accounting issues where profit is less than 1% will not be relevant for the purpose of audit and will not make much difference

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